They have always been plying their trade ! A century ago we knew them as "Pawnbrokers " and to gain a little quick cash you needed to " pawn " the family silver - or at least have something valuable to hock. They were also the ideal venue to " fence "" stolen goods and the police paid regular visits to troll through their merchandise.
In this bright new twenty-first century they have glitzy shops on main street and they freely advertise in the media. Now they are called " PayDay lenders " and purport to be the friendly people who will fill the gap when you have an empty wallet - and there are just a few days until your next pay day. Of course the interest they charge for this service will be a little more than you pay on your housing loan - or on your Mastercard or Visa plastic card !
One of these PayDay lenders has come to grief in Queensland. A class action is under way to reclaim excessive interest charged to somewhere in the vicinity of thirty thousand customers and if it succeeds there is every chance that it will cost the firm involved compensation running to $30 million.
These days each personal loan requires a formal loan agreement and this lender demanded that customers appoint a " broker " as part of the deal. That sounds innocuous but under Queensland law it levies a " brokerage " charge of 35% to the agreement - and in many cases lifts the interest charge from the legal limit of 48% - to a new height of 160%.
Money lending is a fast expanding business. The old pawnbroking idea has morphed into offers to actually buy the goods tendered, and of course desperate people are under pressure to take whatever is offered. Some PayDay lenders are really second hand shops making handsome profits from the markup on goods they have bought cheaply from desperate people.
We are now seeing a new form of money lending services on offer. The incentive is speed. These firms offer a decision in a matter of minutes - and money transferred to your account within the hour. The advertising depicts the sort of situation that the average person can find themselves facing. A burst pipe and water spraying everywhere - and no money to pay for a plumber. How handy a small loan would be in such circumstances - ranging from a few hundred dollars to a little over a thousand ? In the age of the Internet the lender can gain a very quick appraisal of the borrowers circumstances to enable a lending decision - and at the interest rates charged - the odd miscalculation is of little consequence.
Unfortunately, there are some very nice people who lack the ability to manage money well. Their outgoings usually exceed their incomings - and they become victims of the money lenders. The lenders do not press them to repay capital quickly. As long as the interest is kept up to date they are quite happy to roll over the balance into a new loan. This can quickly reach the stage where the borrower is " hooked " into what amounts to an interest charge on capital that never decreases.
Every state has a different set of rules that apply to the money lenders, but the disadvantage always rests against the borrower. Help from the banks or the traditional card companies is no longer available because limits have been reached and the only source of funds quickly is from the money lenders - on their terms !
Fortunately, the states are aggressively policing the rules that apply in an industry not known for it's honesty. At least it is far removed from the old days when pawnbrokers were out of sight in sleazy suburbs or operated directly from their homes. Today the money lenders are in plain sight and they are required to keep records that are open for inspection by the authorities.
Despite the advertising and glitz, borrowers would do well to remember that borrowing money in this manner should be an absolute last resort. It will certainly involve very high interest rates - and as this case in Queensland shows - there is every chance that at least some of the deals on offer will not comply with the law !
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